Wednesday 22nd of October 2008

I’ve held off commenting immediately on National’s plans to invest 40% of the NZ Super Fund into New Zealand assets so the idea can have more thought. At first I thought it was daft, but I wanted to see if there was any merit in it at all. After discussing the idea with others, reading comments and cogitating on it for a while I come to my original observation. It is a daft, or let’s say sub-optimal idea. I know I am not alone in that. There have been a number of other comment pieces such as this one on a Fairfax site called Super Fund Idiocy and even the Herald, which seems like a National Party mouthpiece sometimes, wrote an editorial which was critical of the move. What I don’t get is how a guy who worked for Merrill Lynch, a company which no doubt supports and promotes diversification, can come up with an idea like this? Two of the key issues in this proposal are if National wants to over-ride the Guardians and give them an asset allocation, it’s just a small step to go further and tell them what projects to invest in. No doubt at this stage pork-barrel politics would start with political parties funding pet projects search for more votes rather than returns. Secondly, and more importantly, the fund is being run to generate the best possible long-term returns so money made can be used pay part of the country’s future pension costs. With a sub-optimal asset allocation the decision potentially threatens future super payments. I’m sure National don’t want the electorate to understand this. Stepping back from this one announcement and looking at what National proposes, a couple of things become clear. Superannuation is again a political football and secondly, it seems getting New Zealand and New Zealanders to save wouldn’t be a priority for a National-led government. I had been under the belief that one good thing the Labour administration has done over nine years is sort out the superannuation area; they’ve put certainty into the area and encouraged Kiwis to save. We may not agree with all the things they have implemented, but Finance Minister Michael Cullen has attacked the issue in a staged and logical way and ended up with a pretty reasonable result. There are many things we can be proud of. NZ Superannuation (the state pension) is considered, internationally, a good, simple and fair system. The NZ Super Fund (aka the Cullen Fund) has won plaudits for being a well-constructed sovereign fund, and better than many others around the world, while KiwiSaver is clearly innovative. It may not have won the same level of accolades as the other two bits of the equation, but it looks like it works and the population are embracing it strongly. Along comes National and it proposes some significant changes, which I would suggest are the last thing Kiwis want. Both National and Labour have lost elections on their superannuation policies in the past. Both have acknowledged the lesson, but maybe one hasn’t listened?